Thursday, February 24, 2011

Hong Kong Budget - yuck!

The Financial Secretary released the annual budget yesterday. In short, it was a budget which will please no one. The left wing groups will complain that there were not enough hand outs. For my part, it was disappointing to see so much of the taxpayers' money being wasted, a complete failure to address the most pressing fiscal concerns (civil servants and a narrow tax base) and a total failure to return the excess tax revenue to the people who actually paid it.

Leaving aside the fact that it was utterly predictable (which is usually a good thing), on balance it was a spending orientated budget. Huge sums have been allocated to hugely wasteful infrastructure projects and "sweeteners" designed to alleviate the effects of inflation. For the most part, the sweeteners are poorly designed and may well have the effect of increasing demand rather than alleviating inflation.

On the positive side, we will get rates relief up to HK$1,500 per quarter per property (a bad idea), an electricity subsidy (a bad idea) , increased allowances for some dependants and one off contributions of HK$6,000 to our MPF accounts (a really really bad idea). The latter will benefit MPF service providers more than MPF account holders - if the government wanted to help people better prepare for retirement, abolishing MPF would be a good start. Yes, we benefit from these measures but they are very poor and counterproductive tools to address inflation concerns.

Proposals to increase the supply of land to deal with the (alleged) bubble in real estate prices where there (as expected) but were moderate - enough to suggest that future supply of new units will go up but not so much as to risk a repeat of the 1997 supply increase which crashed the market.

Disappointingly, in spite of the excess tax revenues, the government did not propose reducing the tax rates or providing a tax refund - effectively spending the excess rather than giving it back to the people who actually paid it.

There was also not effort to cut back on the bloated and vastly over paid civil service - Hong Kong's most pressing and egregious fiscal and social issue. Likewise, efforts to get commercial tenants of public properties to pay market rents were meaningless - the situation were commercial businesses are benefiting from the tax payers and the public in general seems set to continue indefinitely.

If this is how gutless our government is with only limited democracy, the prospect of greater democracy is a genuine cause for concern. Let's hope it never happens.So yes, there is money in it for us which is welcome